Missing economic opportunities

IN DECEMBER 1999, when the United States pulled out its last troops and handed control of the Panama Canal to Panama's government, alarmists foresaw disasters ranging from shipping chaos to an invasion by Colombian guerrillas. Optimists predicted a new era of growth for a small but strategically placed country, blessed with good infrastructure and lots of investment possibilities. The alarms have proved false, but so have the hopes.

Plans to develop the formerly American-owned canal zone have stalled. Shippers grumble that more than three years after the Panama Maritime Authority was created to define a strategy for their industry, there is still no strategy. Discontent is growing as the economy slows. Riots over bus fares have been followed by disturbances this week in Colon, the second city, where crime and poverty are rife.

Much of the frustration is directed at President Mireya Moscoso, who took office two years ago promising increased social spending and a more cautious approach to economic liberalisation. Her government has suspended planned privatisations and raised some agricultural import tariffs. It has also faced unexpected difficulties. Government revenues from the canal were up by 46% in 2000 compared with the previous year, after a change in its status from that of a non-profit American federal agency to a privatised business. But revenue from other taxes has fallen sharply. The government is heading for a fiscal deficit of up to 1.5% of GDP this year, after balancing its budget in 2000.

The economic slowdown is not Mrs Moscoso's fault. The departure of hundreds of big-spending American canal staff, the world economy, high oil prices and low banana and coffee prices have all taken their toll. But critics such as Guillermo Chapman, a former economy minister, argue that Mrs Moscoso “has taken a long time to recognise that this slowdown is happening and hasn't come up with an effective programme to face it.”

Coming on top of a nagging series of corruption scandals, this has undermined Mrs Moscoso's popularity and political fortunes. Last year two parties from her coalition defected to the opposition. They are now refusing to pass a much-needed tax reform until the government sets out its economic plans, cuts spending and cracks down on tax evasion and corruption.

Nor did Mrs Moscoso help herself by appointing many young and inexperienced new officials. The Interoceanic Region Authority, which is responsible for canal-zone development, had several projects ready to start, including the redevelopment of Howard air-force base. But after Nicolas Ardito-Barletta, the authority's director, resigned over a dispute with the president, his plans were put on ice. So Panama has not taken advantage of some unusual opportunities.

The government says it will spend more on promoting tourism. It will soon abolish a $1 tax on international telephone calls. That might attract call centres to the country, since it has good fibre-optic connections. And when the Financial Action Task Force, a rich-country watchdog, placed Panama on its money-laundering blacklist last year, the government passed new laws that tighten financial controls and got the country removed from the list this year. Panama's banking authorities are now advising counterparts in Costa Rica, Guatemala and Russia. The government can move fast when it wants to. A pity it doesn't want to more often.